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Scale Effects in Markets with Search

Author

Listed:
  • Barbara Petrongolo
  • Christopher Pissarides

Abstract

Estimates of aggregate matching functions may miss important scale effects in frictional labour markets because of the reactions of job seekers to scale. We estimate a semi-structural model of search and matching on a British sample of unemployed people, testing for scale effects on the probability of receiving an offer and on the distribution of wage offers. We find them only in wage offers but we also find that reservation wages rise to deliver higher post-unemployment wages but not faster matches. So aggregate matching functions should be unaffected by scale but wage equations should be showing them. Copyright 2006 Royal Economic Society.

Suggested Citation

  • Barbara Petrongolo & Christopher Pissarides, 2006. "Scale Effects in Markets with Search," Economic Journal, Royal Economic Society, vol. 116(508), pages 21-44, January.
    • Handle: RePEc:ecj:econjl:v:116:y:2006:i:508:p:21-44
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    JEL classification:

    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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